Question

Song Sue is a shareholder of Gene Company and receives a 2% stock dividend. Song:

a. Will only be legally entitled to such dividend if Generous has positive net income that year
b. Will debit Cash and credit Dividend Income in her accounting records
c. None of the above are correct statements
d. Will own the same percentage of Generous as before
e. Will own a larger percentage of Generous than before

Answer 1

Song Sue will own the same percentage of Gene Company after receiving a 2% stock dividend because this type of dividend issues new shares to shareholders in proportion to their existing holdings, which does not change their relative ownership percentages in the company.

Step-by-step explanation:

When Song Sue receives a 2% stock dividend, it means that she is being given additional shares of Gene Company stock, equivalent to 2% of the shares she already owns. This kind of dividend doesn't involve cash; rather, it's a way to reinvest the company's earnings back into the business by distributing more shares. Therefore, Song Sue will not be making any changes to her personal accounting records concerning cash or dividend income due to this transaction. Answer (d) that Song Sue will own the same percentage of Generous as before, is the correct statement. A stock dividend typically doesn't alter the ownership percentage because it provides additional shares proportionally to all shareholders, thus maintaining existing ownership ratios.